Looking for a new passion this weekend? Increasing technology stocks have a lot to offer in an investment relationship. The world is going digital, so there is no lack of growth in the next decade, and the technology is also highly profitable. Three Fool.com employees think PayPal Holdings (NASDAQ: PYPL), Universal display (NASDAQ: OLED), and Microchip technology (NASDAQ: MCHP) deserve your attention now.
The intersection of banks and technology
Nicholas Rossolillo (PayPal Holdings): Digital payments are nothing new, but PayPal has done a lot of work to make them more mobile and touchless. Since the digital wallet company was separated from the former parent company eBay in 2015, shares rose more than 670% as the app became a modern household name.
But the PayPal race is far from over. The fintech company is located at an increasingly important intersection between banks and technology. In a world that has progressed more and more on the digital road, flexible options for sending money and making purchases are essential for consumers and businesses. PayPal and its subsidiaries (the Venmo mobile money handling app is the main one) are providing the necessary tools, enabling e-commerce, touchless payments in stores, flexible payment terms (your “Pay in 4” option without interest, buy now, pay later), and a growing ecosystem of related services.
During the last quarter of 2020, the volume of payments using a PayPal service increased 39% to $ 277 billion, active accounts increased 24% to 377 million and revenue increased 23% over the previous year. But what is really powerful about PayPal’s business is its rapidly expanding profit margins. With its widely paid payment technology infrastructure, the new revenue is mostly profit. As a result, free cash flow grew 50% higher. With an average of more than $ 1 billion in cash flowing into its businesses each quarter, PayPal has the ability to invest heavily in new features in its applications and make acquisitions (such as purchasing the Honey e-commerce shopping tool) last year).
For investors looking for a stock they may love for a long time (at least a few years, but the longer the better), PayPal checks all the right boxes. Fintech’s importance will only increase in the foreseeable future and PayPal is one of the leading names in next-generation financial services and e-commerce tools.
Image source: Getty Images.
The universal display is bright, beautiful and strong
Anders Bylund (universal screen): You already love the products of this company, without even knowing that you are using them. The time has come to fall in love with the universal display as an investment as well.
Do you know that latest generation smartphone you are using? Whether it’s an Android or an iPhone, it probably has an organic light-emitting diode (OLED) screen. Traditional LCD screens illuminate a grid of colored pixels. On OLED screens, the pixels themselves light up without the need for a separate light source. This gives perfect black OLED screens, strong contrast ratios and low battery consumption. OLED elements are great for smartphones and tablets, they are coming to big screen television sets and eventually will become light panels for everyday use.
As the patent holder of many important innovations within the OLED technology envelope, the Universal Display collects royalties and resells the necessary chemicals whenever these screens or lighting panels are manufactured. Moving from small-screen handheld devices to living room centerpieces is good news for this company’s revenue streams.
Universal Display’s earnings have grown at an average annual rate of 27% over the past five years, while revenue has increased 16% annually. These figures include a sudden slowdown in 2020 due to the COVID-19 pandemic and the next five years are expected to provide even stronger growth in the recovery. The company’s manufacturing partners are busy expanding their screen-building factories, gadget designers of all stripes are working on new ways to use flexible, transparent OLED screens, and Universal Display has not yet developed patents for a larger slice of the pie. total OLED revenue.
It is a profitable business too. This share gained 460% in five years amid rising profits and cash flows. Universal Display has so much cash available that it started paying dividends in 2017. Quarterly payments have since quintupled, but the annual dividend yield still looks ridiculously small, at just 0.3% – because stocks continue to grow almost so quickly. I’ll tell you who’s laughing now: it’s Universal Display investors, even the bank.
OLED data by YCharts
Therefore, Universal Display offers torrential gains in share prices, a deceptively strong dividend policy and a clear path to generous and sustainable business growth.
What’s not to love?
This diverse chip maker is entering a new chapter
Billy Duberstein (Microchip Technology): Diversified chipmaker Microchip Technology is a name to put on your Valentine’s Day list after posting a strong recent quarter in December. It is no surprise, since it is widely known that many semiconductors are in short supply. After two years of the US-China trade war and after the COVID-19 pandemic, chip makers have slowed capacity growth. However, new digital applications and an economic recovery are leading to a huge increase in demand – more than chip makers have in stock.
Microchip is a large and diverse semiconductor company that produces microcontrollers (53.7% of revenue), analog chips (27.6%), FPGAs (7.3%) and licensing, memory and other services across a wide range of industries. In the recent quarter, Microchip increased revenue by 3.3% over the previous quarter and 5% over the previous year’s quarter, but it was probably limited by supply, not demand. In fact, management guided a sequential growth of 7.5% at the midpoint, pointing to an acceleration in sales.
Not only that, but the demand is apparently so overwhelming that management has implemented the first Preferred Supply Program for customers. PSP allows customers to obtain priority capacity if they reserve 12 months of non-cancelable and non-refundable orders.
Clearly, we are entering a chip up cycle after several years of headwinds. But not only that, Microchip is also entering a new phase. Two and a half years ago, in mid-2018, Microchip acquired Microsemi, incurring a colossal $ 8 billion debt in the process, just on the eve of the trade war crisis. Although it was a terrible time, Microchip has already paid $ 3.24 billion of that debt, while maintaining its dividends.
Management says it plans to get its leverage ratio (net debt to EBITDA) below three by the end of the year, when it would then explore repurchases. Management has also just increased its current 1% dividend by 5.8% and plans to increase it quarterly as it slows down this year.
A less indebted company with rising dividends amid a semiconductor boom seems like a good match for me this Valentine’s Day.